Franchise Buyer's Checklist

While investigating a franchise opportunity, ensure these points do not conceal problems

The Franchisee Prospectus should contain...

  • Directors' and key executives' business experience
  • Company's track record
  • Description of the franchise
  • Initial investment required
  • Other payments due to the franchisor
  • Data on help in raising finance
  • Restrictions on franchisee's personal participation
  • Termination/renewal of agreement terms
  • Number of existing franchisees and their success rates
  • Franchisor's rights to select/approve sites
  • Training and support guaranteed to the franchisee
  • Financial information about pilot operation
  • Financial data on the franchisor
  • List of franchisor's banker and other professional advisers

What to find out from the franchisor...

  • The Company's financial health and history
  • How long it has been franchising
  • Details of pilot operation results
  • Current number of franchisees
  • Permission to talk to random franchisees
  • Main source of company earnings
  • Value and appeal of product or service
  • Long term viability of product/service
  • Type and level of head office support
  • Full details of the training provided
  • Whether training is an extra cost
  • Total cost of taking up the franchise
  • Realistic working capital needed
  • Permission for bank references and other referees
  • Territorial practices and exclusivity terms
  • Types and amounts of advertising
  • Any need to buy products from the franchisor
  • Target obligations
  • Realistic profit and loss figures
  • Management service fees or royalty payments
  • Operating restrictions
  • Launch assistance
  • Sample contract

The Franchise Contract must cover...

  • Your rights to sell/transfer ownership of franchise
  • Obligations to the franchisor, e.g. buying supplies / services
  • Rights to renew or extend contract beyond original term
  • Terms and conditions for terminating contract
  • Description of exact training and support offered
  • Precise price, commissions, rental fees involved
  • Precise boundaries of the territory awarded to you
  • Description of your heir's rights in the event of your death

Be wary if the franchisor...

  • Promises huge profits with thin investments
  • Says 'act now to get in on the ground floor'
  • Fails to give statistics on sales and profits
  • Promises 'easy sales'
  • Fails to identify directors or principals
  • Tries to 'trade you up' to a higher fee
  • Says 'act now, it will cost more later'
  • Promises profits by sub-franchising
  • Has a name similar to a well known business
  • Promises large income from 'work from home'
  • Demands large 'front end' licence fee
  • Has a very short term contract
  • Provides no data on track record or financial strength
  • Cannot give plans for future development
  • Has vague territories
  • Is ignorant of competition
  • Has incomprehensible contract
  • Is vague about support and training
  • Has weak advertising
  • Is vague about your financial obligations
  • Has poor head office premises